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News/Business. Ali Velshi. CNN anchors break down the financial news of the week. New.

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Washington 20, U.s. 13, Us 12, America 8, Ali 6, United States 5, S&p 5, Warren Buffett 3, Pimco 3, Ryon Stewart 2, Gina 2, Ali Velshi 2, Obama 2, Sandy 2, Harry Reid 2, Europe 2, Asia 2, Mohamed 2, China 2, Stephen 2,
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  CNN    Your Money    News/Business. Ali Velshi. CNN anchors  
   break down the financial news of the week. New.  

    January 5, 2013
    10:00 - 11:00am PST  

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nebraska for more than a decade before retiring in 2009. he now sits on the white house intelligence advisory board. and pass jers on this icelandic air flight had enough and here's the result. a newspaper in iceland reports that a fellow passenger drank an entire bottle of duty. free alcohol then started spitting on other passengers. he rereportedly tried to joke one. the passengers fought back, subdued him and taped him to his seat for the rest of the flight. police arrested him when the plane landed in new york. on "cnn newsroom" at 2:00, uncertainty in venezuela as that country's president deals with serious health issues. what this means for hugo chavez and his government. also here in the u.s., the gun control debate. a house democrat, a vietnam veteran and gun owner, talk ts about possible regulation. then at 3:00 eastern, a plane goes down off venezuela, a
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fashion executive is missing. the latest on the search for vittorio missoni. good-bye, l cliff, hello debt ceiling cliff. i'm ali velshi. your elected officials ready to push america over the edge of the cliff. >>ly not have another debate with this congress over whether or not they should pay the bills that they've already racked up through the laws that they passed. >> well, yes, you will, mr. president, and very soon. democrats and republicans are set to clash again over raising the u.s. debt ceiling. let me tell you back in the old days the u.s. had a system where every time a bill involving money was passed the treasury had to raise money for it by issuing bonds. the debt ceiling law was established to give the u.s. treasury the flexibility to borrow money without going to congress to get approval every time a bill was passed.
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it had absolutely nothing to do with spending control or debt control. it was a technicality. most functioning countries don't have any such thing because they understand that if the government spends the money it has to pay the bills. republicans seem to think the debt creeling is is a good tool to limit how much the government spends. the current debt ceiling was officially hit on december 31st, but like last time the u.s. treasury is using extraordinary measures to get it through. and sometime about late february or early march, they might. if congress doesn't act by then, the government risks not being able to pay some of its bills. now, as if that's not enough, by march 1st we could be heading off the sequester cliff. that's because the fiscal cliff deal that passed last week put off what to do with government spending for two months. blanket cuts are still mandated by law to take effect unless both parties can agree to more targeted cuts. governments will target entit
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entitlements like social security and medicare. democrats will stand in their way. the gop will then use the debt creeling to bang on the heads of democrats to try to get their way on cuts. but if washington gets to march unscathed, there is a potential budget cliff to look out for. the current bill funding most of the federal government runs out on march 27th. by then it will be four years since the last actual complete budget was signed into law. look for lawmakers to extebld it again through another so-called continuing budget resolution. now, this continues, we stand the possibility of another debt downgrade and higher borrowing costs. washington can't agree on anything except for last-minute tax deals after 518 days of grandstanding. this is no way to run the u.s. government. joining me now to discuss this is steven moore, an anti-tax crusader and editorial board member at "the wall street journal." steven, let me start with you. president obama says the debt creeling is nonnegotiable, but republicans in congress are going to use it as a negotiation
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tactic. you always say the government needs to get out of the way and let businesses grow. suspect not raising the debt creeling to pay for bills already incurred standing in the way of the economy? >> well, you know, ali, you said the republicans view this as a good tool to try to discipline spending. i don't think they view this as a good tool, but i think they view it as maybe the only tool that they have right now to try to get president obama to negotiate on spending cuts. as you've quite correctly said, we just lived through the first of these cliffs, which was the fiscal cliff. we got by that one. you know, democrats feel they had their day there and they did. they got their tax increase. republicans are still wondering when are we going to get around to reforming these big giant entitlement programs and maybe disciplining spending on the discretionary side. so i do think there will be a showdown on this debt ceiling. you may not like it, but i think we may come to the brink again. that's just the way -- you're right. this is way washington works
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now. >> you know, conservative republicans hold themselves up as financially responsible. >> right. >> season this an irresponsible thing to do? despite ideological leaning, to not pay bills we've already run up? >> well, you know, i think you gave a nice presentation in terms of the history of the debt ceiling but, you know, the recent history, as long as i've been in washington the last 25 year, ali, we broke from that convention and have used the debt ceiling, both parties, as a way to get things they want in terms of the budget process. i remember back in the 1980s, remember we had these votes on the balanced budget amendment. that was part of the debt ceiling. then we had, remember, graham rudman. that was supposed to discipline spending. that was part of the debt ceiling. the convention of the last two or three decades has been to use the debt ceiling as a tool to get serious about cutting spending. >> mohammed el ari is the ceo of pimco, one of the largest investors in bonlds. president obama appointed him to chair the global development
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council. congratulations on that. businesses and markets want certainty in the economy in order to invest and hopefully promote growth. we've averted the fiscal cliff barely but have three more potential cliffs awaiting. america's economy has been slowly picking up steam. could washington damage america's economic prospectings with the way these things are being done? >> yes, it could damage and has been damaging because we've been growing below potential. as you point out and as stephen said and i agree, we have yet another drama coming up in the next few weeks because we have to deal with the three issues -- debt ceiling, sequester, and continuing resolution. if someone wants to pleau a whistle and say time-out, everybody, let's step back and see what we're doing, all of us would conclude, democrats and republicans, that we have a messy if not broken economic governance system. the major casualty of that is economic growth.
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ironically, economic growth is what is needed to help what the democrats and republicans favor. it's very frustrating because the more this political brinkmanship and posturing go on, the greater we hinder the potential for the country to grow. >> and some comes from the tax discussion. taxes for the rich got the headlines in this debate but it's not only the rich who who will pay more in 2013. christine romans joins me with more. lots of taxes are going up despite the deal. >> oh, yeah. tacks are rising for the super rich for the first time in 20 years and they'll have company because 77% of americans will pay higher taxes this year. even those making less than $10,000 will pay 68 bucks more in federal taxes. between $50,000 and $75,000, $822 more. but the more money you make, the bigger the hit. families making more an than a
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million dollars a year will see a tax spike of $170,000 because of the higher tax rates. but for the middle class come prs the payroll tax cut. it wasn't renewed. workers will pay that 6.2% payroll taxes up from the 4.2% they've paid in the past couple years. and another backdoor tax increase for upper middle class. joint filers making more than $300,000, individuals making more than $250,000 see their personal exemption and itemized deductions limited. that means higher tax bills for those families. in fact, the tax policy center says pretty much the only groups who won't have higher taxes this year are retirees, the unemployed, the disabled, and rich people who don't work. >> wow. all right. >> tax bills higher for everyone else. >> this was pretty broad based despite the fact we have the impression that only the rich got taxed higher. we'll talk about jobs later on. >> yeah. >> maiya mcgips is the head of the committee for responsible federal budget in washington.
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maiya, most americans paying higher taxes following this drama. if your focus is on long-term solutions to economic problems. with three more cliffs facing the u.s. in the next few mos, what's the danger of consistently making policy through these manufactured crises? >> well, exactly. and we're already actually experiencing the result of that in that we know what we have to co-to fix these problems. we have to deal with all the parts of the budget. we've got to reform the tax code and probably raise more revenues than we have. and we have to focus on controlling spending and reforming our entitlements, which are right now unsustainable. we continue to delay in dealing with them. delaying all of this is irresponsible and the fact we negotiate these deals and make these changes is, krun, incremental, two, always at the last moment, is already harming the economy. the potential upside we have is going to come from putting some certainty into the economy, putting plans in place that are
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sustainable and people know what they can expect. that's going to allow us to return to much stronger economic growth that we can absen those choices. our political system is failing to put those changes in place right now even though we don't see the direct effects on us, it's already affecting all of us -- households, families, small businesses. and we're not going to get back on track until we make these changes. >> let me ask mohamed. when maya talks about certainty, stephen has, certainty is what we want. even when it goes in a direction you don't like. how do you reconcile there are ideological and legitimate differences between conservatives and liberals in this country about tax and spending policy with the idea that the world requires certainty to retain its faith in the united states? >> well, i think you can reconcile lots of these in a growing economy. i think that's critical, ali. a lot of these inconsistencies can be reconciled if the economy were growing. it is when the pie starts to shrink or doesn't grow fast enough that these become so
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divisive and become paralyzinpa. we know lots of companies that have strong balance sheets, that have lots of cash on their balance sheets, but they're not investing. ask them why and they say we don't know what the environment looks like. tell us what the environment looks like so we can calculate the potential return on our investments and we'll invest. if uncertainty prevails, the risk premium is very high and proi yao price out a lot of investment activity that's good for everybody. >> or they might go somewhere elsewhere they have certainty even though it might not be a preferential investment environment. all of this fiscal cliff madness is about spending and revenue. in other words, what you would call a budget. there is nothing more broken in washington than the budget process. if you are not yet outraged, stay with me until after the commercial and you will be.
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the fiscal cliff debate has centered on two things, the revenue the u.s. government takes in and the money it spends. in a perfect world that would be laid out in a plan every year that would take the form of a budget. no surprise we're in this mess considering congress has gone close to four years without agreeing to a new federal budget. the current so-called continuing resolution is the latest extension to the last federal budget -- sit down for this -- it was signed into law in april 2009. the current continuing resolution expires on march 27th. under normal circumstances the president submits an annual budget proposal to congress in
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february for the fiscal year which stars in october. based on that, a budget resolution is written, deliberations and hearings take place, amendments are made, the complete budget resolution is supposed to be passed by april the 15th, but it often takes longer than that. in the end, it's sent to the president for his signature or veto. now, sometimes congress doesn't pass a budget resolution, and when that happens the previous year's resolution stays in effect. so-called continuing resolutions are approved that continue funding federal agencies at their current levels. that way the government doesn't need to shut down just because your elected officials won't agree on a new budget. the only problem is we've had countless continuing resolutions over the last four years because very little if anything is agreed to in washington these days. again, this is no way to run the government. maya mcguineas, why don't we have have a budget and why does this seem to happen every year? >> i really agree with a point you made before, which is there are different points of view
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from republicans and democrats where one wants smaller government, one wants bigger and they're different points of view. yet the way we handle this in washington is completely unacceptable and leads to two things. instead of compromising we just spend more money and refuse to pay for it. that's why we have a deficit. and because policymakers are unwilling to come together and compromise and hammer out those differences, we operate the single biggest economy in the world without a budget, because they don't want to face up to the actual choices. if you want to spend more, how are you going to pay for it? or if you want lower taxes, what spending are you willing to cut? and big deficits and operating without a budget is kind of an easy way to escape those hard choices. and that is what has left us in this really damaging, unsustainable economic situation which is frankly so bad for the economy and also bad for the next generation. >> who do you hold responsible? not for ideological differences but for not having budgets. >> you know, and i'm a political
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independent, and people always say whose fault is it, let's point the fingers. i hold our government officials responsible, the people who we all hire to come to washington to run this country and we're working with a lot of ceos watching this and saying how come these guys can't work together? they want to get more involved with pushing them to come up with a deal because it's so frustrating to them and our small business leaders and our citizens who are part of fix the debt saying we actually want them to solve the problems and help strengthen the economy. i don't want to look at it as two camps. i want to look at it as people hired to run the country and we're not running it well right now. >> i'd like to look like brad pitt and have a full head of hair but i don't think i'll get that either. stephen, how bad is it that we don't have a budget and who's responsible? >> it's dysfunctional that we don't have a budget. let's be fair here. and i am a republican so i'll admit that. but when you talk act not passing a budget, ali, you should let your viewers know
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that it has been 1,400 days since the democrats under harry reid have passed a budget. they haven't done their constitutional obligation of passing a budget every year. you may or may not like paul ryan's budget. i know there are things in it you picked apart, but at least the republicans have passed a budge net the house. so when you say are both sides responsible for not passing a budget, no. the democrats have not. the president as you know every year submits a budget to congress. he will submit one in the weeks ahead. when he submitted his last budget before the democratic congress and they voted on it, that was defeated 97-0. so one of the problems here, and i think what republicans are going to say going forward, is mr. president, you and harry reid go forward. we've passed three budgets. we've done one every year. it's time for you to show your hand and tell us what you want to do. the frustration i have with you and mohamed is you talk about how, you know, we have this gridlock and that, you know, the republicans aren't being reasonable.
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but isn't it time for the democrats to say what they want to cut? >> mohamed, let me ask you this. as you look at evaluating people's creditworthiness, is this absence of ooh budget, does that come into the equation when looking at the united states' creditworthiness and its investment climate? >> yes, and for many reasons. first, an annual budget is the most basic element of economic governance. a family knows that. you know, your annual budget is really important. and if you have a country and as maya said the most powerful country in the world who can't even do, that it points to dysfunction. second, the more we focus on the fiscal issue, the more we get obsessed, the more we forget other things that need to happen to grow this economy. remember, medium-term sustainability is a fraction. the numerator is debt and deficits. the denominator is growth and prosperity. and the more we divert attention from what needs to be done to --
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this reminds me of a divorcing couple fighting over a pillowcase. all right? and, yes, it may be important, but there's a lot more to the estate that you should worry about. >> right. ? and the frustrating thing is that we're not looking at what -- congress is creating problem after problem to divert attention from much bigger issues that require difficult decisions. >> love you guys at pimco. you come up with the best analogies. divorcing couple fighting over pillowcase and ignoring the bigger part of the estate. great conversation to all of you. stephen, mohamed, maya, thanks very much. i want to ask you out there, who do you hold responsible for not having a budget? you heard the arguments. tell me what you think. tweet me @alivelshi. could the fiscal cliff had happened in another country with a different form of government? we'll see if america's system of government is to blame for the current mess. imp for $11.99. i can't imagine anything better. you're getting a ton of shrimp, and it tastes really good!
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so many people have said to me in the past months if only america had a different political system, maybe a parliamentary system, in which a government with a majority could get something done. here in the united states through a system of checks and balances president obama can veto legislation that's passed in congress, but he needs to work with congress if he hopes to sign laws that he supports. meanwhile, the u.s. supreme court can declare laws unconstitutional even though the other two branches have passed them. in great britain, they have a parliamentary system where power is concentrated in the
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legislature with very few checks on its powers. as long as a political party holds a majority of seats in parliament it can go ahead and form a cabinet of ministers headed by the prime minister. but if the party with the most seats holds less than an absolute majority, it tries to form a coalition government with other parties that are seated in parliament. so long as the government has the backing of a parliamentary majority it is pretty much assured of passing anything it wants into law. not so in the united states. americans elected a democrat to the white house and a republican majority to the house of representatives. the u.s. is no stranger to gridlock and fiscal cliff negotiations were just another frustrating example. my good friend richard quest host of "quest means business" on cnn international joined me from london for a little debate on what we like to call "q&a." could the fiscal cliff have happened in another country with another type of government? richard, ring the bell so i can start. [ bell ] all right. the fiscal cliff, richard,
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couldn't happen anywhere but in the united states because last year washington passed laws that mandated across-the-board spending cuts and tax hikes harsh enough to send america back into a recession. that was billed as a compromise, by the way, between a democratic white house and a republican-dominated house just to raise the u.s. debt ceiling. that's where this started. i'm the first to concede politicians in a parliamentary system like yours in the united kingdom are just as capable of enacting stupid laws, but today's fiscal cliff can only be born in a system where two branches of government are at per pep yule war with each other as they are now. bottom line, in a par elementary system, it is faster and easier to pass legislation if you've got a majority elected by the people. they push their agenda until such time that either another election comes around or voters lose confidence. it's not perfect. sometimes the parliamentary majority does the wrong thing because of its mandate, but washington would have a better chance of getting things done if we had that kind of a system,
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richard. that's my 6:30. you have 60 seconds. >> this is deeply, deeply worrying because you are -- you and i are virtually word for word. [ bell ] by its very nature, no system of government is perfect and can suit every situation. but it must be pointed out the u.s. does manage to get itself in some more political gridlock more often than others. even those countries which have executive presidential systems -- france, for instance. >> right. >> even in cohabitation they don't end up in the same situation or stalemate. one reason, of course, is especially where we have the parliamentary system. that majority that you're talking about which supports the government. and even when it's a weak parliamentary system, israel, the coalition collapses, and everybody has another vote.
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so pulling it together, checks and balances are an amazing bulwark. they are the system of strength of the united states. but when you have both ends of pennsylvania avenue at each other's throats hammering out disagreements, it's just about impossible. >> and "action&a" and you. i want to know if you think the embarrass that is the fiscal cliff mess could happen in another country. coming up, why december's jobs numbers say another economic mess on the horizon if washington doesn't mess things up. the boys use capital one venture miles for their annual football trip. that's double miles you can actually use. tragically, their buddy got sacked by blackouts. but it's our tradition! that's roughing the card holder. but with the capital one venture card you get double miles you can actually use.
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155,000 net new jobs added in the month of december. meanwhile, the unemployment rate in the united states stayed steady at 7.8% after the labor department revised the rate up just a notch. more of the same. positive if otherwise sluggish job gains that we've been seeing for about 30 straight months. but big gains in construction and manufacturing jobs in december kind of support my thesis that an economic renaissance is beginning in america if only washington would stop trying to mess things up. for more on what this jobs report said, here's christine. >> hope you're right, ali. you have enough jobs being created that you're absorbing new people in into the workforce but not meaningfully lowering the unemployment rate and that's where things get sticky. the underemployment rate, 14.4%, that's not budging either, those working part-time but would like
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to be working full-time, out of work and kind of sidelined by this economy. you mentioned a couple areas doing well. i want to add 44,500 jobs created in health care. that's been a steady winner for the economy. some of those are low-paid jobs. others middle-class jobs. leisure and hospitality. we must have been i ges preparing for the end of world by going out to dinner december because they added waitresses, waiters, chefs and bartenders. manufacturing jobs, 25,000 created there. you can see the construction jobs. some of those are hurricane sandy related. and maybe as you get some federal aid flowing in the northeast some of those jobs will continue again. when you look within the sectors, you can see basically steady for everybody except the african-american unemployment rate, ali, jumped up to 14%. it's been volatile. but you can see the structural disparities here between some of the different worker groups. quite frankly, the great recession just made that worse, quite frankly. this is over the past year.
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remember in the spring how worried we were about that weak jobs report indicating very, very difficult in the election season about who was going to reverse this? but look, now you're seeing this -- i would call this businesses carefully hiring, but, you know, they're waiting for something really to unlock the genie out of the bottle and haven't seen it yet. >> christine, let's join this conversation with diane swonk, chief economist at mesereau financial. you and i have talked about this. i've been saying the u.s. is poised for an economic renaissance with this energy boom and things going on in housing and maybe manufacturing. we did see in this report some gains in construction. we saw gains in manufacturing. what's your sense? what do you make of this report? >> well, the construction and manufacturing, some was sandy related and some housing related. the only real bright spart was residential construction. that's where the real bang for the dollar is in terms of jobs. that's the place we need to see
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come back. we continue to see, though, some losses in educational employment at the state and local level and retirees in the postal sector. we have yet to see cutbacks in postal -- the budget for the post office so, that will be a bigger head wind down the road. but we are seeing retirees come out there. the public sector still a drag on the overall numbers. i also think it's important on the health care industry where the surprise on the upside was in nursing and in nursing homes, basically, people -- the 80 and over demographic are the fastest growing demographic today. so you're starting to see that filter through and the contour of the jobs. the flip side of this report, where was the fiscal cliff fears, it was in retail. we saw the retail fires in december. remember, retail was very weak. people started to realize the fiscal cliff was out there. a lot of stores said they never recouped after sandy what they thought they would. and the whole retail season they came in for the discounts but they didn't come in in force. we tau sau the retailers that had hired up early fire and get rid of some of those seasonal
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workers a little earlier as well. that's the fiscal cliff sort of undercurrent in this story as well. >> diane, is there anything in the fiscal cliff resolution, in the law, that could unlock some of that money on the sidelines the companies have sitting in the bank? i know there's a bonus depreciation clause. people talk act pork for different industries. anything in the fiscal cliff that you think does provide some resolution to companies so that maybe this month they say i am going to add another shift, i am going to hire more workers, try to respond? >> i wish i could say yes, and it top optimistic. i do think we've learned something from 2011, but we have two months on the sequestration and headed down for the debt ceiling, which i hope does not occur. we're in a no man's land right now. the fiscal cliff deal resolution was marginal. it did not get the kind of resolution companies needed. in fact, it sort of confirmed, you know, we are going to see -- there is a tax hike for most americans because you had that expiring payroll tax, and that will hurt retailers. so the retailers that usually
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get that hangover into january now because of gift cards and all the buying sort of got pushed into january, that's not occurring and that's not going to cur in january. i think we'll see more of a head wind in retail in january so there's not the kinds of things that unlock the money from the sidelines until we get a real fiscal deal and washington shows it can do more than pass the 11th hour. thank goodness january 1st was a holiday. everything expired on the 31st. they took the holiday so no one would notice they missed the deadline. >> i was looking forward to january 1st and 2nd for this to be over. 1.8 million jobs created in 2012. about 150,000 a month. both obama and romney said if they are elected they'll create 12 million jobs in four years, 3 million a year, about 250,000 a month. we do know there's not going to be any unlocking, unleashing of this economic animal spirit at least until the fiscal cliff is finally settled, the quester march 1st, we hope.
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then there's a bunch of debate. have we pushed back those days in which we can start to see real growth in this renaissance? >> unfortunately, i think we have. if we do get over this and get to some real resolution -- we talked about this before -- roadmap for fiscal responsibility in this country, avoid a default on our debt, avoid downgrades to our debt and look like our government is leading instead of lagging the rest of the world, that could set the stage for a much stronger second half. you talked about housing. you know, housing is a game changer. we now have housing prices rising instead of falling. remodeling picking up. finally unlocking the money to rebuild for the hurricane disaster areas along with the insurance payments. we've already seen it in auto sales. that was when the fastest claims came through. that along with the housing market and that wealth effect from homes moving up in price, people willing to remodel, the stock of homes in new york has fallen to huge lows, pushing up prices there. this is a major game changer for the u.s. economy. and even though we're still seeing losses in public sector
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jobs they're abathing. so the dynamics for 2013 are actually the best they've been in years if we just get the government out of the way. >> absolutely right. well said. good to see you. happy new year. i suspect we'll be talking lots. diane swonk, chief economist at meserow financial. recognize this guy? of course you do. warren buffett. his legacy will be defined by the billions he's made for himself and his investors. but the more important part might be the work done by his children, howard buffett, a farmer set to take over the empire.
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when warren buffett speaks, investors listen. the legendary 81-year-old investing legend has yet to name a ceo to succeed him but he's picked his son, howard, to become nonexecutive chairman of berkshire hathaway when he leaves. it was a selection that continue founded some investors because howard isn't a high. flying investor on wall street. he's a farmer from illinois. i asked howard what his father means when he calls him "the guardian" of berkshire's culture. >> well, it's pretty simple. it means he's made a lot of
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promises over the years to a lot of individuals, a lot of manager, a lot of family, and he wants those promises kept and he wants the same culture in place. and so, you know, i'll have nothing to do with running the company, but i understand the company reasonably well. and so there will be a ceo in place that does the day-to-day management, but he also wants to ensure that between the board and a nonexecutive chairman position that really the culture is maintained. >> i wasn't being facetious when i said you're a farmer from illinois. >> no. i have -- i often describe it this way. my mother said i didn't have enough tonka toys when i was lit sol now i have a lot of big toys. >> you conduct your own harvests. >> yep. i block out time in april and september and make sure that i'm home. but it's a rolling office for me. i mean, i had tony blair there this year, eva longoria, and it's a captive audience. it's great. you ket gete them in there and they can't go anywhere. >> they have to work. >> they have to work. >> why are you a farmer and in
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particular the end of that sentence is why are you a farmer when warren buffett is your father? >> i'll back up and say that it's because he is my father, because my dad is amazing in terms of letting his kids do what they want to do, what they're best at doing, letting them fail and learn from that. and so, you know, the fact that he told all three of us go do what you love doing, what you enjoy doing, that's how i ended up there. if i had a father that was trying to direct me one way or the other, i would never have the opportunity to do what i'm doing. >> turn to politics far second because it is kind of central. i've tried to avoid politics for much of this show today, but it is important. you are a republican. you identify as a republican. >> yeah. >> you also have a father whose name has been attached to something that is an anathema to republicans. what do you think about taxes? >> i don't think my dad's that far off on this one. i mean, you know, i was -- when
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we were visiting earlier i said, you know, i'm in a 35% tax bracket. my dad got me thinking about a few months ago. i went back and our effective tax rate that we've paid over the last five years has averaged just under 24%. so, you know, i like to talk act i'm taxed at 35%. i'm not paying 35%. so -- but i also believe that you can overtax and you can hurt people and if you hurt people you hurt the economy by overtaxing. there's a balance there. but i can tell you we have a long way to go on the spending side of things p. >> yeah. a lot of work there. one of the things that we're looking at that's being examined the estate tax. this is an issue that you have some direct experience with, with the passing. your father is a signatory to a letter to say there should be taxes on estates particularly because he doesn't think that dynastic wealth is something we should strive for in america. why would you touch the money my family has worked so hard to earn? >> it's an emotional issue.
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>> it is. >> i completely understand that. i think my dad's line is one of the best, which is, you know, i'm going to give my kids enough that they can do something but not nothing. and if you just think about, that that's a great philosophy. i think my dad's clever without saying it because he gaye all three of us kids, now almost a couple billion dollars over time through our foundations. and to me what better inheritance could you have than to be able to go out and spend serious money on trying to solve some of the most serious problems? so when i look at it personally, i look at it as my parents have already basically given me an inheritance. and i love what they've done for all three of us. >> were you ever sore that you didn't get more? >> no. i think -- what i listened -- it's interesting because you go through -- and everybody would be different. but at fist i'm thinking i need more, i need more, i need more. then you get more and you go, okay, now i've got to be really
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responsible with this. this is a lot more. and so you kind of go through these phases. i think he was very smart about how he staged this in for us. >> well, despite the political madness in washington over the past year, stocks rang up some pretty impressive gains in 2012. you can probably thank ben bernanke and the fed for that. after the break, we'll tell you what 2013 holds. and everyone likes 50% more... [ midwestern/chicago accent ] cheddar! yeah! 50 percent more [yodeling] yodel-ay-ee-oo. 50% more flash. [ southern accent ] 50 percent more taters. that's where tots come from. [ male announcer ] the capital one cash rewards card gives you 1% cash back on every purchase plus a 50% annual bonus on the cash you earn. it's the card for people who like more cash. 50% more spy stuff. what's in your wallet? this car is too small. [ slap! ] [ male announcer ] your favorite foods fighting you? fight back fast with tums. calcium-rich tums starts working so fast
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the blissful pause just before that rich sweetness touches your lips. the delightful discovery, the mid-sweetening realization that you have the house all to yourself. well, almost. the sweet reward, making a delicious choice that's also a smart choice. splenda no-calorie sweetener. with the original sugar-like taste you love and trust. splenda makes the moment yours. 2012, ze spite everything going on, was a pretty good year
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for the stock market. the s&p 500 gained about 13%. that's the biggest gain in three years. problem is most of you probably missed it. individual investors yanked more than $150 billion from the u.s. storable over the course of year and that turned out to be a mistake. but i get why it happened. between banks behaving badly, political dysfunction in washington, worrying winds from europe, the mark was a scary place to have your money. but it is a new year, new opportunity to put your money to work. it will be volatile. it will be unpredictable. 2012's worries have not disappeared. we have a debt ceiling debate, a fiscal cliff deadline on the horizon, a budget discussion, and here in the united states we still have concerns about growth in europe and asia. cnn money polled a group of money managers. on average, they forecasted the s&p 500 will finish the year up 4.5%. that's pretty low by historical standards. pimco founder and chief investment officer bill gross is on the same page. his forecast, one that stocks and bonds both return less than 5% in 2013. unemployment, by the way, he
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thinks will stay at 7.5%, and that gold will grow up. ned riley, chairman of nily asset management. you are an eternal optimist with marks. are these forecasts too low? >> they are too low. as a matter of fact, we're looking specifically for the unemployment rate to drop to about 7%. the creation of 250,000 jobs a month seems a little bit ambitious as the administration has put that out as the target. but i look at things such as what the auto industry is doing today versus what it did a year ago. what the housing industry is going to do in 2013 to get things motoring along. i also am somewhat of a contrarian on china and the far east. i think things are going to get better as the year progresses. industrial production turned up a little bit in china. the eurozone should benefit from the easing monetary policies that they've seen, and we're not even arguing about a financial crisis in the eurozone right now.
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interest rates have actually come down in those countries. when i wrap it all together and i've got about ten other reasons why i like the stock market, i think it will be up about what it was this year, about 13% or so. >> more than double what a lot these economicis are predi predicting. that's a bullish way. if you're going to get 10%, 12%, 13% on the market, it's definitely worth being in. equity strategist at wells fargo securities, gina, ned ticks off unemployment, auto, housing, asia. you put those same things into a mix and you don't get as optimistic as he is. >> it's more likely the market takes a little bit of pause. a lot of that is because of policy and everything that's going on in washington, creatinging some degree of limited risk tolerance. but the other key component is earnings. i mean, the market has risen over the last several years on the backbone of very strong earnings gains. a year ago we were talking about 16% earnings gains 16% earnings growth year over
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year, now 0 to 3%. i think we're more likely to take a little bit of pause. the economy resets. the earnings resets in 2013 and then maybe we can poof higher into the end of the year. >> let's take it a little further how these sectors p-ed in 2012. financials did the best. up more than 26%. but you can see consumer discretionary which is the kind of thing that it's affected by this fiscal cliff discussion, not doing so well. health care probably continues to be okay. information technology a little worse. energy return was very low return, very low natural gas prices may have contributed to that. what do you think in terms of sectors? where would you go? >> my favorite market going into 2013 is the yield oriented sectors, health care, consumer staples, utilities. investors completely up with yield fearing tax increases. i think the yield is still very
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desirable to an investor searching for opportunities for income. i think yield oriented probably present the best opportunity. on the other hand, i think technology and energy are probably of the most dangerous components right now. technology in particular has the worst earnings trends in the index, probably going to show 0% earnings in the fourth request the. as businesses have actually pulled back on spending to the tune of recession sorts of spending environments. so tech is a little dangerous. energy really dependent upon the price of oil. we've had magnificent discoveries in the energy space over the last couple years. that's going to have great impacts on the economy going forward but presents hurdles for stocks in terms of performance. >> cost of energy is coming down. we're not sure what that does to the energy stocks. ned, what are you liking, what you are not liking? >> just the opposite. i love the technology area right now. last year, i bet on the cues. the year before i bet on the qs.
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i hear the case about slowing earnings, but the stocks have already slowed down. apple is 200 points below its high. if you start to look at them statistically, the price earnings ratios on big cap stocks are less than the s&p 500. the future, the future growth, secular growth of the industry has got to be twice that of the s&p, yet it's got a p/e ratio that's 3 percentage points less. 3 multiple points. the other factor i like about it is, this is the reason employment growth hasn't been strong. substitution of labor for capital, clearly we've seen productivity rise because of what's going on in technology. the world still has to be wired without any question whatsoever. and i get back to this valuation issue again, if you look at free cash flow, enterprise value versus free cash flow, the top five stocks in the big tech index are selling at half of the multiple that they were five and ten years ago. my god, this is an industry that's gone bananas on one side
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of the earnings and yet the price earnings ratios have already dropped to take in the uncertainty of sicklicality involved. i think that this bonus depreciation, once i figure out what it means, could be a boon to the apples of the world and the rest, but more importantly, it shows that capital investment is getting some notice in washington and clearly, they know we need capital spending in this country to boost our economy. and top export. so bottom line, i love technology. i do like the health care area right now because it is the same thing, a unit grower. the other stocks consumer nondiscretionary i don't like. consumer discretionary have come up quite a bit because of what's gone on in basic economics. i'm looking for 1500 in the s&p 500 over the next year and a half. earrings this year, maybe 4 or 5% growth. inflation and interest rate starting to rise gradually
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throughout the year as the fed loses control over the long end of the curve because of fundamental cyclical strength we'll see in the economy. >> gina, you still think there are remarkable opportunities. three of us are agreed this constant pullout from the market should stop when it comes to viewers? >> i think there are selective opportunities for 2013. i don't want to suggest it's an all out low case for stock. i do think that investors searching for yield do have an opportunity particularly considering the trend we saw at the end of 2012 1234r50 gina martin, ned riley, hey, what are you doing with your money in 2013? as you've heard, there could be an economic renaissance. tweet me now @ali velshi. coming up, partisanship over conflict. these have been prevailing themes in washington over the past several months and overshadow a lot of positive work being done by folks trying to make a real difference in the world. coming up, i'll introduce you to a man and organization dedicated
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